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Dining on international arbitration in Japan - what are you eating?

The conclusion of the JAEPA (the Free Trade Agreement between Japan and Australia) in April presents new opportunities for Australian companies to do business with Japan. With Japanese companies increasingly demanding arbitration clauses in international commercial agreements, expect that in any deal you will be asked to agree to disputes being resolved by arbitration in Japan.

Japan is a suitable and reliable place for international arbitration. But just like ordering Fugu (Japanese poisonous puffer fish), it pays to know exactly what you’re biting into.

THE TABLE IS SET

The Japanese arbitration law is based on the UNCITRAL Model Law of 1985 and is generally compatible with the arbitration laws of modern arbitration jurisdictions, Australia included. You can be comfortable that procedural aspects of an arbitration will reflect current international arbitration practice. Recent amendments to the Japanese Commercial Arbitration Association’s arbitration rules have made arbitration in Japan even more palatable.

A DIFFERENT WAY OF EATING

Keep in mind Japan is a civil law country. If the arbitration is in Japan and the agreement governed by Japanese law the arbitral tribunal could include Japanese (or other civil) lawyers, and what happened during negotiations before the contract is signed is likely to play a bigger role in the dispute than it otherwise would in Australia and other common law countries. Having civil lawyers on the arbitration panel will also affect strategy as to how the arbitration is run, including the level of detail of initial pleadings and how written arguments and evidence are presented.

If the tribunal is led by Japanese lawyers, the process of exchanging documents and its scope may be narrower and closer to Japanese civil procedure, where only specific documents or very limited categories of documents are swapped. This is in stark contrast to the United States and (to a lesser extent) Australian styles of disclosure.

The advantage is that a more limited document production process can make the arbitration faster and keep costs down. On the flip side, in arbitrations involving Japan many of the relevant documents are likely to be in Japanese. What to translate, and the time and cost of review and translation, must be planned for.

Also be aware that there are no laws providing for legal privilege in Japan. Nor is there “without prejudice” privilege. This doesn’t mean that in international arbitrations involving Japan, documents between lawyers and clients or “without prejudice” communications must be handed over. However, different considerations will apply in arguing for their protection compared to litigation in Australia or arbitrations that involve only countries that recognise legal privilege.

JUDGING THE MEAL

Japan’s Courts are traditionally supportive of arbitration, recognise valid arbitration agreements and are reluctant to intervene. This generally means a procedurally smooth arbitration. But, if a problem does arise that requires Court assistance, there is less case law than in other countries and no specialist arbitration judges.

MAKING SURE YOU GET DESSERT

There are no express restrictions in Japan’s arbitration laws as to the types of relief that an arbitral tribunal can award. Where the substantive law of the arbitration allows what you are seeking – arbitrators are able to grant those remedies. The only exception is where those remedies are in violation of Japan’s public policy (punitive damages, for example).

Japanese courts are not known to be interventionist, and only in the rarest instance would set aside an arbitral award rendered in Japan.

Like the country itself, arbitration in Japan is modern, safe and reliable, but it does have a few quirks. Overall it is an appetising place for arbitration. When an agreement to arbitrate in Japan is put on the table for your next deal, knowing what is involved will make any potential dispute easier to digest.

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